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OUR OUTLOOK

We believe global economic growth will grow, grudgingly at best. It will probably be inadequate to raise prices of industrial materials or to increase oil demand noticeably.

Russia and China are both showing signs of being willing to make aggressive moves that could start wars.

Historically, a US election year has shown a regrettable tendency for above-average rating for geopolitical risks. The next President will be, according to current polls, the most despised to win an election in more than a century.

Lately, the commodity markets have been driven primarily by fear, not greed. Greed tends to be minimal with near-zero rates being transmogrified into negative rates—seemingly only appropriate for masochists who no longer believe in growth. In the USA,

We were deeply underweight oil stocks through most of the crash because of analysis of the Saudi strategy toward its enemy, Iran, re-entering when we concluded they had to give up: Obama and Iran won and Iran is on its way to becoming a more terrifying factor in the Mideast.

Oil prices have stopped falling, and, for the first time in more than two years, the line of least resistance is from the upside. If the situations in Nigeria and Venezuela continue to deteriorate, civil wars or revolutions could slash or end production in one or both of those mismanaged nations. Iranian production is coming back fast. The biggest factor in world oil production is not geological resource limitation, but the quality of governments in oil-producing nations. That the International Energy Agency is restating its figures on oil production and consumption toward balance is certainly bullish news, which is backed up by evidence that the Saudis are willing to review their production plans in agreement with OPEC partners.

Profitability of US oil companies operating in Republican states such as Texas, Oklahoma, Kansas, and North Dakota has benefited from leftist Democratic Party state governments that ban fracking, thereby enriching producers in Republican states. We see little likelihood of major political changes at the state or local level, so if oil prices move into the Mid-Fifties, our US oil producers operating in those states will do very well.

We remain negative about the outlook for Canadian oil stocks because of the unprecedented political and politically correct problems facing them. Two years ago, it was the Obama White House. That roadblock would disappear in the remote event that Mr. Trump wins. However, the far more difficult roadblocks of Canadian domestic politics and environmentalist rages will not go away soon. The huge fires in Northern Alberta were enormous challenges to the people of the oil sands companies, and they responded splendidly and, at times heroically. Now they face deeply political local enemies.

Food prices are being affected in varying ways by the powerful El Nino, which is now fading. We remain positive about the outlook for aquaculture and meat.

With El Niño fading, we believe there is little risk of major crop failures that would send corn and wheat prices sharply higher. La Niña comes next, which means cooling, but this is unlikely to affect North American crop prices.  In the Portfolio Consultant’s view, food price risk looks benign.

We remain bullish on gold and silver stocks. They tend to prosper most when governments misbehave most. That is a bull market with legs.

Footnote:

1. Actual Fund performance is reported by the Fund on the BMO Capital Markets Structured Products website:
https://www.bmocm.com/investorsolutions/closed-end-funds/#type=Closed-End Funds&tab=Past Issues

2. Links to Bloomberg for Indicative performance are also provided on this site.
Bloomberg http://www.bloomberg.com/quote/CRY:IND